Opening a New Business in Brazil

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Table of Contents

Introduction
MERCOSUR and its impact on coffee production industry.
Fair trade production of coffee
Fair Trade Production and Millennium Developmental Goals
Conclusion
Works Cited

Introduction

This paper aims to show how coffee industry in Brazil has been affected by the adoption of free trade agreements, in particular, MERCOSUR^[1]. Furthermore, we need to discuss the challenges, connected with fair trade production of coffee and its differences from free trade production. Finally, it is necessary to examine those obstacles and opportunities, faced by people, who want to start a coffee production business in Brazil.

MERCOSUR and its impact on coffee production industry.

First of all, it should be noted that in 1991 such countries as Brazil, Argentina, Paraguay and Uruguay signed the Treaty of Asuncion. Its key objective was to facilitate free trade on the territory of these countries. This treaty resulted in the creation of a common market called MERCOSUR.

This agreement contributed to the free movement of products and labor force. It goes without saying that this treaty has impacted virtually every industry, and coffee production was not the exception from this rule. We should point out that Brazilian farmers had to compete with their Argentinean counterparts, whose productivity level was much higher at that moment (Alimonda, p 38).

Therefore, in order to survive in this sphere of business, one had to raise production level. Such approach is based on the expansion of the enterprise rather than improvement the quality of its products (Azevedo et al, p 31). In addition to that, we should mention that at that moment, Brazilian market is dominated such US-based companies as Kraft Foods and Sara Lee, which acted as mediators between farmers and the producers of instant coffee (Azevedo et al, p 31).

Therefore, the key difficulty, faced by many representatives of coffee industry was the necessity to launch a scale production in order to be competitive. Moreover, under such circumstances, a newcomer can enter the market, only he/she has a considerable starting capital. As far as Gonzalo Gomes is concerned, we can say that he will be able to withstand rivalry of already-existing firms, if he runs the company in an efficient manner.

Yet, there are also some opportunities: a new-comer can obtain competitive advantage over others by paying more attention to the quality of the product. Again, we need to emphasize the idea that the adoption of the Asuncion Treaty forced many companies to compete by increasing the volumes of production rather than through diligent quality control. This is why Gonzalo can find a niche in this industry if he establishes high quality control standards.

Fair trade production of coffee

In recent years, such concept as fair trade production has become increasingly popular. It is particularly relevant to developing countries, which export coffee, sugar, cocoa and other provisions to the US, Australia, or the UK. The main purpose of this approach is to ensure that people, working in agricultural sphere, receive adequate compensation.

Furthermore, it aims to improve their work conditions. To a great extent, this policy came into being because many people in the United States or Western Europe began to pay more attention to ethical aspects of consumption. It became evident that people living in Brazil or any other country, exporting coffee do not receive sufficient compensation for their work (Mann, unpaged).

People, often tend to contrast free trade and fair trade production, but these notions are quite compatible with one another as both of them rely on the unlimited movement of products and labor force. The only difference between them is that the supporters of fair trade try to make sure that people, working on coffee plantations, receive remuneration which is proportionate to their hard labor (Fridell, p 6). As a rule, it is argued that the notion of fair trade production entails setting fixed prices on coffee.

Furthermore, it is believed that fair trade production is possible only with help of governmental intervention into the private businesses. Still, this goal can be achieved without governmental support. It can be done by excluding numerous middlemen, who take almost half the world price for coffee (Mann, unpaged). As a matter of fact, the presence of such mediators may be the key reason why a significant part of Brazilian population lives beyond poverty line.

One should take it into account that a company requires a certificate from independent organizations, in order to style itself as fair trade manufacturer. The companies, which call themselves fair trade manufactures, are closely monitored by many Fair Trade Labeling organizations, which help to promote their products on the market. On the whole, if I had been in Gonzalo’s position, I would have advocated fair trade production.

It is not connected only with ethical considerations, though they are also important. The thing is that the share of fair trade products increases each year almost at twenty percent (Fair Trade Labelling Organizations International, unpaged). This means that in the near future, a company without fair trade certificate may not be able to compete with others and its products will no longer enjoy demand. This is why Gonzalo should take a fair trade approach to the production of coffee.

Fair Trade Production and Millennium Developmental Goals

The concept of fair trade production is closely related with Millennium Developmental Goals (MDGs) that focus on the needs of low-income people, living in developing countries. Namely, we need to speak about the eradication of extreme poverty and development of global partnership.

As it has been mentioned before, fair trade production of coffee will ensure that Brazilian farmers would receive decent wages for their work. Given the fact that a large portion of Brazilian population work in this sphere, we can say that that the adoption of fair trade principles can significantly raise the standards of living in this country.

Secondly, this policy will enable producers from developing countries to penetrate American and Western European markets. Yet, it can be done only under the condition that their products are of high quality and that they are able to promote their goods to the market without the assistance of middlemen. Such exclusion of mediators lies at the core of fair trade production.

Conclusion

The ratification of such free trade agreement as MERCOSUR has strongly influenced coffee production industry in Brazil: first, it became much more competitive, and inefficient enterprises were forced out of business. Secondly, the majority of companies began to place emphasis on the volume of output rather than the quality of the products.

This was a marked shift to a scale economy. However, in recent years, consumers throughout the world have become much more sensitive about ethical aspects of consumption and this has given rise to such economic concept as fair trade production.

The adherents of this policy argue that people living in developing countries such as Brazil do not get adequate compensation for their labor. Those entrepreneurs, who intend to open a coffee production business in Brazil, should adopt a fair trade approach to the management of their company, as this policy will distinguish them in American and European markets.

Works Cited

Alimonda Hector. Brazilian Society and Regional Integration. Latin American Perspectives, Vol. 27, No. 6, 2000, pp. 27-44.

Azevedo Paolo. Chaddad Fabio & Farina Elizabeth. The food industry in Brazil and the United States: the effects of the FTAA on trade and investment. BID-INTAL, 2004.

Fair Trade Labelling Organizations International (FLO). “Global Fairtrade sales increase yearly by 22%”. 2009. Web.

Fridell G. Fair trade coffee: the prospects and pitfalls of market-driven social justice. University of Toronto Press, 2007.

Mann Judy. “For a Better Brew, a Pinch of Social Justice”. The Washington Post. 2000.

Mercado Comlin del Cono Sur – (Southern Cone Common Market).

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